What should China's economy do to avoid experiencing the same "lost thirty years" as Japan?
How can China's economy avoid falling into the "lost 30 years"?
With the release of economic data for the second quarter, some people believe that Japan has experienced an economic turning point, fallen into deflation, and experienced a "lost thirty years".
In the face of the complex situation facing China's economy in recent years, China may also follow the old path of "lost thirty years" like Japan.
However, although many people feel that the economic environment is complex and facing great pressure, China cannot experience such a long recession as Japan.
But there is a problem here, now the GDP growth rate in the second quarter is 4.7%, which is slowing down, and the CPI and PPI indices are relatively low, falling into technical deflation.
Q2 GDP was 4.7%
Under such circumstances, why should we not follow the old path of Japan's economy? Today we will talk about this topic, it is not easy to code words, welcome to like, forward, and collect.
Will Japan's past become China's future?
Although China's economy is much better than Japan's economic downturn, there are many similar phenomena.
For example, the negative GDP growth of Japan's economy after the bursting of the bubble, China's GDP in the second quarter decreased by 0.6% quarter-on-quarter, below 5%; Japan has a persistent deflationary CPI of -0.1%, while China is in technical deflation, with a CPI of only 0.2%.
Japan's economic bubble burst
Another example is that Japan's economic consumption is weak, and the consumption growth rate has not exceeded 5%, while China's total retail sales of consumer goods in the second quarter increased by 2.0% year-on-year, which is actually relatively low.
Now look at corporate investment, after the bursting of the bubble in Japan, enterprises are often reluctant to invest, Japan's investment growth rate has declined rapidly, the average enterprise equipment investment is only 0.7%, and China's situation is much better, but the development of the real economy and confidence have also weakened.
Finally, if from a financial point of view, Japan has entered an era of negative interest rates due to continuous deflation, and although China has restrained the pace of interest rate cuts, in recent years, the central bank has actually been cutting interest rates, hoping to stimulate the economy and stimulate market vitality.
China's central bank has been trying to stimulate the economy by releasing water
So from a macro point of view, China's economy is actually a high-end version of Japan's lost economy for 30 years, but we have much better data.
But the question is, what do we rely on to prevent China's economy from following the old path of Japan's economy? The answer may be, a more proactive, rational response, or even reform.
Can the release of water save China? Correct, but not enough.
With the popularity of monetary theory, the easiest way to save the economy is actually to release water, the subprime mortgage crisis in 2008, and the collapse of the United States economy caused by the epidemic in 2020 were all saved by the big release. Even Japan relied on the infinite release of water from Abenomics to get Japan's economy out of the quagmire.
So, should China do the same? The former governor of the central bank said that Yi Gang wrote an article called "Controlling Deflation and Micro Mechanism Reform", and the article believes that the meaning of deflation is not important, but the important thing is to define the policy meaning behind deflation.
Large-scale water release will lead to a widening gap between the rich and the poor, asset bubbles, and a depreciation of the renminbi.
What does that mean? Combined with China's national conditions, that is, although it is still important for the central bank to release water and even borrow money to develop the economy, the monetary policy must be prudent, because excessive easing will inevitably lead to asset bubbles and the pressure of RMB depreciation, which is more than worth the loss for China's economy.
Therefore, since last year, although economists and society have always hoped that the central bank will release water to save the economy, the central bank has clearly expressed its opposition and is quite "restrained".
Just like the situation in United States, even if the problem of deflation in China is solved, how to solve the problem of the subsequent asset bubble, the widening gap between the rich and the poor, and the depreciation of the renminbi?
The Fed released water to save the economy, but caused the United States to fall into severe inflation.
Therefore, the big release of water is to drink water to quench thirst, which seems to be very effective, but the consequences are very serious, and when the time comes, those experts and scholars who make suggestions pat their butts and leave, but the mess still has to be dealt with by the central bank itself.
Therefore, the words of experts can be believed, but not all of them, many experts are actually people who sell their fame and reputation to study.
Can't release water in a big way? You can rely on reform to break the game!
Since it is not possible to release water, then how can we break the game? There are two paths to take.
Historically, China actually had deflation around 2000, and at that time, we relied on joining the WTO, opening up business, slimming down the government, and strategic economic restructuring, so China's economy developed very well in those 10 years.
China's accession to the WTO has stepped out of the shadow of deflation and achieved rapid development.
The situation is similar now, in the troika of China's economy, the pace of investment is slowing down, the consumption data is relatively sluggish, and the export data is very good, which can be said to have single-handedly boosted the growth rate of China's economy.
Therefore, in the face of the structural contradiction of insufficient domestic demand and oversupply, a more direct way for us to solve the problem is to use national strength, influence and diplomatic means to establish deeper and more frequent trade exchanges with countries around the world, and export high-quality products to the outside world, so as to digest domestic production capacity.
These earned dollars and foreign exchange will also continue to contribute to the stability of the RMB exchange rate, stabilize domestic manufacturing employment, and help China's economic development. So you see, why does China have to resist foreign pressure to carry out the Belt and Road Initiative? The problem is to export goods.
The investment and trade between China and Saudi Arabia are becoming increasingly close
In addition to exports, what about our domestic fundamentals? From a historical point of view, the only way to break the situation is "reform".
At the recent meeting, the biggest highlight was actually a full range of up to 300 reforms, and the focus of the meeting was the high-level layout, the way to break the situation, I will briefly talk about it.
First of all, a rather conspicuous contradiction in the domestic economy lies in the financial difficulties of the local grass-roots units; in the face of this situation, the current reform means that it is necessary to improve the financial relations between the central and local governments, and the central authorities will appropriately obtain the powers, but they will allocate a part of the financial resources to the local governments, so as to solve the problem, and this is the "fiscal and taxation reform" that will be the focus of this time.
Consumption tax reform is the focus of this time
You must know that China is very big, although many big things can be solved by the central government, but countless small things like sesame seeds still have to rely on the local government to solve them, which is a big matter related to people's livelihood.
For example, in the face of the real estate industry, we have introduced a lot of policies in recent years, but the effect is not very ideal, even the second-hand housing prices in June have continued to fall. Therefore, this reform is to promote "new urbanization" and implement the "basic public service system of household registration in the place of permanent residence".
What does that mean? To put it simply, Jiangxi workers who came to Shanghai to work were not able to enjoy some of Shanghai's urban benefits before, but after the reform, they can basically enjoy the equalization of public services, and the treatment of migrant workers is similar to that of urban people, thus promoting the migration of migrant workers to the cities and speeding up the transfer of the rural population to the urban population.
Hukou reform, and new urbanization, will help cut inventories, increase consumption, and stimulate the economy.
In this process of shifting from farmers to urban residents, a large amount of consumption will be generated, which will stimulate economic growth, and can also inject new demand and capital into the real estate industry, driving the growth of finance, education, medical care and so on.
Another example is the proposal in this reform to orderly expand the opening up of the commodity market, service market, capital market, and labor market.
The key point here is that under the demographic transition and aging, China should not be the same as before, but should continue to open up more vigorously, attract foreign people to enter the country, and enjoy convenient domestic living, medical care, payment and other living convenience systems.
Open to the outside world, attract foreign tourists to see China, travel to China, and stimulate consumption.
For example, the 144-hour visa-free visa exemption will attract foreign tourists to travel and spend in China, and the people-to-people exchanges between China and other countries will be strengthened, so that the ties between them can be closer. Only this kind of opening up can promote the development and prosperity of China's economy and make China's economy more dynamic.
Opening up and reform are the eternal driving force for development
We can see that even after the reform and opening up, China's economic development has not been smooth sailing, and it can even be said that every few years, we will encounter a series of major problems that can go down in history.
However, China is now the world's second largest economy after United States, and if you calculate purchasing power at parity, China has even surpassed United States to become the world's largest economy very early.
Only by continuous reform and the release of dividends can we achieve the great rejuvenation of the nation!
What have we relied on to get to where we are now? The answer is to continue to reform and release the dividends of reform, and continue to open up to make Chinese society more vibrant.
Only by relying on reform and opening up can China's economy fundamentally resolve contradictions, avoid repeating the mistakes of the past, follow the old path of Japan, and finally realize the great rejuvenation of the Chinese nation!
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